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The Japanese Ministry of Health, Labor, and Welfare (MHLW) has announced cuts in reimbursement levels for drugs and medical devices that will go into effect April 1, 2006. The revised reimbursement for drugs under the National Health Insurance program means an average price cut for the pharmaceutical industry of 6.7% (or 1.6% on a cost basis). Medical devices were cut by 0.2% on a cost basis.

Of the 13,311 items listed on the NHI scheme, 10,113 (or 76% of all items) will experience reduced reimbursement prices. Foreign drug companies will be affected less by these cuts than domestic companies. Some of the large Japanese companies experienced average price cuts of 7% or higher, with individual drug cuts of up to 15%, while some foreign companies experienced average cuts of 5 to 6.5%. Original drugs whose patents have expired and who are already competing with generic drugs on the market, or those companies whose patents will expire in the next few years, experienced higher cuts than anticipatedâ€”6 to 8% instead of the previous special reduction rate of 4 to 6%. Pediatric drugs, however, experienced an increase in reimbursement of between 3 and 10%. Premiums were also increased for some new drug innovations.

With regard to price cuts for medical devices, price cuts of less than 15% will be implemented immediately in April, while more substantial cuts exceeding 15% will be implemented in three phases over the course of the next year, with the final cut occurring in April 2007.

In the orthopedic market, for example, hip implants experienced an average price cut of 13%, while knee implants were cut by about 7%. Reimbursement on trauma products was reduced by around 12%, while spinal products experienced minimal reductions of less than 5%.

The announced price cuts are part of the MHLWâ€™s efforts to address the spiraling cost of health care in Japan; it recently announced a plan to cut health spending by $59 billion by 2025. The recent drug price cuts have spurred many Japanese drug companies to develop overseas markets and to build more facilities in countries such as China, Malaysia, and Indonesia.